Analytics

Monday, February 21, 2011

Introduction

Hey readers,

If you've come to this blog it's because you're looking for some interesting information on value investing. This being the first post, I think it makes sense to spend some time talking about the most basic premises behind value investing and introduce myself a bit.

First, introductions out of the way- I have been investing with a fundamental based value strategy for about 8 years. In 2008, I started an investment vehicle which I continue to run to this day which exclusively uses value investing for equity selection. At the end of 2009, I moved to Monaco and reside here to this day where I manage my money and my fund's money. I still am very much active in this field. Value investing is not a set of rules from a 70 year old book for me, it is a real, practical set of rules that has provided me with ample fortune throughout my life. The past few years of stomach churning agony in the stock markets provided immense opportunities on which I capitalized using the strategies I intend to divulge here.

The real essence of value investing is the idea of getting a bargain. A value investor examines enterprises, often mature and often under duress, that are very attractively priced for what it is the investor receives. In my opinion it is by far the most logical, I would say the only logical, method to approaching long-term investment. And it carries a number of advantages.

Most financial institutions refuse to engage in the behavior that a successful value investor engages in, which leaves a lot of profits for smaller independent investors. Most of them are incapable of the patience necessary to engage in successful value investing-- a value investment can take months or a year to turn around, and institutional investors are monitored for monthly performance. They will often denounce a typical value investment as being too risky. This is often because a real bargain in the stock market will occur after a significant drop in a stock price, which greatly increases something known in financial lingo as "beta." If you already know what beta is, forget it, it's useless. Believing that it is easier to estimate the movements of the entirety of marketable securities and use it as a gauge to predict the oscillations of the price of a single company is lunacy to a value investor. We know that investors are buyers of attractively priced companies, not oracles, and that we have no crystal ball when it comes to the unpredictable. This leads to my second point.

Value investing does not rely on predicting the future. We can all accept that the future of the economy will definitely affect the future of any business you hold, and as a value investor we aim to arrive in situations that can prove advantageous in the most number of potential circumstances. A value investor knows that risk and reward and uncorrelated and that there are situations of minimum risk and massive reward, but ironically many people invest in situations of maximum risk with minimum reward.

So knowing now what a value investor doesn't do, mainly follow the herd or try to predict the future, what is at the heart of what we do?

Company financial statements.

In my upcoming first post we'll dive right in and examine the anatomy of financial statements. Before you consider investing you need to really have a good grasp of not only what these financial statements are really saying, but what they're saying by what they're not saying. We'll take a glance at a company's financial statements and do a valuation of the company, either one that I am actually looking at buying myself. There will be no stodgy classroom lessons here, just practical, useful information that you can use in your search for good investments.